Experts assessed the ruble exchange rate under different consequences of the EU oil embargo

The average annual exchange rate of the ruble in 2023 will be 83 rubles. per DOLLAR, if RUSSIA manages to replace the falling oil exports to the EU by half and a barrel of Brent will cost $100, estimated at Renaissance Capital,

The ruble exchange rate in 2023 will be 83 rubles. per dollar, if Russia is able to redirect the falling oil exports to Europe by 50%, Brent oil will cost $100 per barrel, and Urals $70. Such parameters of the basic forecast of the ruble exchange rate were assessed by Renaissance Capital analysts. In a review received by RBC, they calculated the values ​​of the ruble exchange rate under different scenarios for replacing oil exports due to sanctions restrictions, as well as at various oil prices.

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The dynamics of the ruble exchange rate in real terms (taking into account the difference between internal and external inflation) has historically closely correlated with the dynamics of oil prices, write Renaissance Capital economists Sofia Donets and Andrey Melashchenko. However, if after the start of the pandemic in 2020, the ruble exchange rate looked undervalued relative to oil prices, which was mainly due to the introduction of restrictions on production and EXPORT volumes under the OPEC + deal, then in May-June 2022, the ruble moved to overvaluation by 15–17%. Experts gave such an assessment taking into account the trend in Urals oil prices with its significant discount to Brent prices. In May, the discount was about $32 per barrel.

According to economists, in the medium term, the embargo imposed by the EU on the export of Russian oil and petroleum products, as well as other trade restrictions, which together will affect 30% of Russian exports, will work in the negative ruble. In early June, the European Union agreed on an oil embargo, which primarily affected the import of oil from Russia by sea. By the end of the year, Russian oil supplies to the EU should be reduced by about 90%, said the HEAD of the European Commission, Ursula von der Leyen.

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Depending on how large-scale Russia manages to reorient the dropped oil exports to the EU to the markets of other countries, Renaissance Capital analysts predicted the ruble exchange rate in 2023. The key point in the potential redistribution of global energy export flows is the position of OPEC, the review notes. Complete substitution of Russian exports to Europe, according to economists, is possible only through the reorientation of OPEC supplies from Asian markets to the European Union, in the case of only increasing world production or increasing exports of American oil to the EU, this will not happen. OPEC includes such major oil producing countries as Saudi Arabia, Iraq, the United Arab Emirates and Iran.

Another forecast variable was the price of oil. “In the export forecast, we proceed from the assumption that global oil prices will remain at a high level in 2022 and slightly decrease in 2023 (including taking into account the growth of recessionary risks). The consensus market forecast is about $110 per barrel on average in 2022 and about $100 per barrel on average in 2023,” the review says. At the same time, Russian Urals oil has been trading at a discount of $25-35 per barrel in recent months and there are no factors for its narrowing, which implies the forecast for Russian oil prices at $80 and $70 per barrel in 2022 and 2023, analysts specify.

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In the worst-case scenario — if Russia fails to replace banned supplies to Europe at all and if the consensus forecast for oil prices is realized — the average ruble exchange rate in 2023 will be 93 rubles. per dollar. In the optimistic scenario - with the redistribution of 100% of exports - the exchange rate is expected to be 74 rubles. per dollar. The higher the price of oil in all three scenarios, the stronger the ruble will be, and the estimated discount in the price of Urals to Brent is invariably estimated at $30, economists say.

According to the May forecast of the Ministry of Economic Development, the average annual exchange rate of the ruble in 2023 will be 77 rubles. per dollar, Urals oil will cost $71.4 per barrel. The Central Bank expects the cost of Urals $65 per barrel next year, the regulator traditionally does not give a rate forecast.